Richemont, the Swiss luxury goods group, announces its unaudited consolidated results for the six month period ended 30 September 2014.
- Sales grew by 2 % to € 5 430 million and by 4 % at constant exchange rates
- Performance varied across regions and product lines
- Operating profit decreased by 4 % to € 1 311 million, reflecting volatile trading conditions and unfavourable currency movements
- Operating margin declined by 160 basis points to 24.1 %
- Profit for the period declined by 23 % to € 907 million, reflecting primarily unrealised currency hedging losses
- Solid cash flow from operations of € 1 008 million.
Richemont results for the first half were fairly resilient overall, given the volatility of the environment that affected our clients and retailer partners in all regions, with the notable exceptions of the Americas and Middle East. Worth highlighting is the resilience of the jewellery category where sales rose by 10 % at constant exchange rates.
In this difficult environment, the Group’s Maisons benefited from successful product launches and, in certain markets, price increases. Lower precious material prices and cost containment measures helped mitigate subdued sales and the overall negative impact of foreign exchange rates. The decline in operating profit was limited to 4 %.
Net profit decreased by 23 %. Together with the lower operating profit, this reduction is explained by the substantial € 239 million mark-to-market charge associated with our well-established hedging programme. This compares to a gain of € 127 million in the comparative period.
Cash flow from operations remained solid, reflecting strict working capital management by the Maisons. Richemont has an exceptionally strong balance sheet with net cash of € 4.3 billion at 30 September 2014.
In the month of October, sales increased by 4 % at actual exchange rates. Sales in the month were 1 % lower at constant exchange rates, partly reflecting the exceptional level of high jewellery sales in the Asia Pacific region during the comparative period. In geographic terms, the volatile sales pattern seen during the six-month period continued into the month of October with growth in the Americas, Europe and the Middle East, but lower sales in the Asia Pacific region and Japan. Wholesale sales outperformed retail in certain regions.
As in previous challenging periods, cost control measures have been put in place to preserve the Group’s cash flows. At the same time Richemont’s Maisons will continue to pursue their differentiated marketing strategies and planned investment programmes.
The external environment remains difficult ahead of the holiday trading period. Taking a longer-term view, the strength of the Maisons, the quality of our products, the skills of our artisans and the financial strength of Richemont means we can look forward positively. We remain confident that demand for high quality products will continue to grow in the global market.
In the six-month period, sales increased by 2 % at actual exchange rates or by 4 % at constant exchange rates. The overall increase in sales reflected the international demand for jewellery, which grew by 10 % at constant exchange rates, partly offset by subdued demand for other goods. In regional terms, the markets in Europe and the Americas continued to report solid growth, whereas sales in Asia Pacific were broadly in line with the prior period. Further details of sales by region, distribution channel and business area are given in the Review of operations.
Gross profit increased by 3 % despite currency headwinds. The gross margin percentage was 60 basis points higher at 64.5 % of sales. The margin increase largely reflected favourable channel mix and input costs.
Operating expenses increased at a faster rate than sales revenue, resulting in a limited decline in operating profit to € 1 311 million. The operating margin decreased by 160 basis points to 24.1 % in the six-month period.
The increase in gross profit was more than offset by controlled increases in operating expenses.
Compared to the 4 % increase in sales through the Maisons’ own boutique networks, the 7 % growth in selling and distribution costs reflected the depreciation charges linked to the opening of new boutiques and increases in fixed rental costs. The 12 % increase in communication expenses includes the cost of participation in the Biennale des Antiquaires et de la Haute-Joaillerie in Paris, where four of the Group’s Maisons exhibited their collections, as well as a planned overall increase for Net-a-Porter.
Profit for the Period
Profit for the period decreased by 23 % or € 278 million to € 907 million.
In value terms, compared with the low decrease in operating profit, the significant decrease in net profit for the period reflected the following item recorded within net finance income/(costs): € 239 million of mark-to-market net losses in respect of currency hedging activities (2013: net gains of € 127 million).
Earnings per share decreased by 24 % to € 1.603 Infinity %on a diluted basis. To comply with the South African practice of providing headline earnings per share (‘HEPS’) data, the relevant figure for headline earnings for the period ended 30 September 2014 would be € 910 million (2013: € 1 191 million). Basic HEPS for the period was € 1.616 (2013: € 2.148). Diluted HEPS for the period was € 1.607 (2013: € 2.123). Further details regarding earnings per share and HEPS, including an itemised reconciliation, may be found in note 10 of the Group’s condensed consolidated interim financial statements.